Why not begin to tax rich farmers?

Finance minister Arun Jaitley’s categorical declaration that the Central government has no plans to tax agricultural income is due to the sensitivity of a proposal that has been toyed with at various times by the bureaucracy to widen the tax net. The political class is scared of even speaking about this, fearing they would be seen as anti-farmer. In a nation known for being lackadaisical about tax compliance, there is an urgent need to increase tax collections by including more classes of people who earn well above what average citizens get to keep after paying taxes most of their working life. The latest proposal came from Niti Aayog member Bibek Debroy, and was quickly shot down as his personal view, than that of the planning body or the government. It was also strenuously noted that a reference in the three-year draft action agenda document was only about the need to scrutinise entities evading taxes by misusing exemptions, and that taxing agriculture was a state than a Central subject.

The prompt denial was to scotch the perception that the government was thinking of taxing farmers’ incomes, after the Opposition periodically roasted it for being “anti-farmer”. The BJP has in fact gone the extra mile to acquire a pro-farmer image by waiving off '35,000 crore in Uttar Pradesh’s farmers’ loans. In a particularly distressful year for agriculture, it wanted to ensure no wrong signals went out. But it is also true that the blanket exemption for agricultural incomes has led to devious practices, making it a conduit to avoid taxes. It is well known that politicians, filmstars and sportsmen often use this provision to avoid paying tax. To justify the exemption isn’t easy, specially when richer farmers are known to drive around in Mercedes-Benz, BMWs and Hummers bought with tax-free incomes.

The argument that in an equitable society prosperous farmers should also pay their fair share of taxes doesn’t negate the logic that farmers need all the help that they can be given in subsidies for inputs and a good support price regime, besides access to free markets to derive the best price for their produce. Taxpayers account for just about one per cent of the population — about 1.25 crore people out of 123 crore — in the 2013 assessment year, according to government data. The receipts from personal income-tax serve only to keep the collection machinery in place, though the figures of taxpayers have been going up in recent years. Taxing rich farmers would be a good signal that all earners are equal in the eyes of the law, and must share the national burden of paying taxes. But the question is — which government will dare to imposes taxes on farmers? Therein lies one of India’s several inequities.